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America Online: Often Down, Never Out

July 19, 1998

Books

AMERICA ONLINE: OFTEN DOWN, NEVER OUT

AOL.COM

How Steve Case Beat Bill Gates, Nailed the Netheads,

and Made Millions in the War for the Web

By Kara Swisher

Times Business 333pp $25

On May 11, 1993, CEO Stephen M. Case of America Online Inc. found himself face to face with Microsoft Corp. Chairman William H. Gates III. AOL, then the third-largest online-service provider, had gone public only a year earlier, after some fairly rocky beginnings. Gates--the most powerful man in Corporate America--was telling Case in a deadpan tone: "I can buy 20% of you or I can buy all of you. Or I can go into this business myself and bury you."

The scene provides a dramatic opening for Kara Swisher's book aol.com. The company was "in constant danger," Swisher writes. "Innumerable challenges had given AOL a heart-rending roller-coaster ride all along the way." But despite its many missteps and regular predictions of its demise, the company and its ragtag band of executives somehow prevailed. AOL, based in Dulles, Va., is now the world's leading online service, with 12 million users, besting Gates's Microsoft Network, which has just over 2 million.

The adventures of AOL contain the raw material for a riveting tale. Swisher, who reports on Silicon Valley for The Wall Street Journal, does a good job recounting the company's turning points and depicting the assorted characters who led the way--from taciturn co-founder Case, now chairman and CEO, to the flamboyant, recently imported president, Robert W. Pittman. Regular AOL followers, though, may find the book offers few insights, despite the access the author got from the company starting in late 1996.

Swisher excels in relating the chronology of AOL's endless perils and occasional triumphs. Founded in 1982 in Vienna, Va., as Control Video Corp., the company initially planned to become an online computer-games service and then a maker of proprietary online services for Commodore International, Apple Computer, and Tandy--but that did not pan out. In 1991, when the 32-year-old Case became president, the company struck out on its own as America Online. It resisted the acquisition overtures from larger competitor CompuServe Inc., and it had a run of good luck when media giant Tribune Co. ponied up $5 million for a 9% stake. The next year, AOL--with 150,000 users, $20 million in revenues, and little profit--went public.

No sooner had AOL employees celebrated their Wall Street debut than more threats appeared on the horizon. First, Microsoft founder Paul G. Allen started accumulating AOL shares. Then, at the meeting with Case that was recounted at the book's beginning, Gates proposed that Microsoft should buy out AOL. When Case, now CEO, persuaded his board to back a go-it-alone strategy, Microsoft began developing a competing online service.

So it goes. The book treks through the rest of AOL's more familiar latter-day experiences. The company launches a bold membership drive, "March to a Million," mass-mailing 250 million free AOL software disks to consumers. The surge in users clogs AOL's system in February, 1994, earning the company its derogatory moniker "America On Hold." Two months later, AOL hits its 1 million goal.

Then, AOL survives Microsoft Network's 1995 launch, pulling a fast one to neutralize its foe by incorporating both Netscape Communications Corp.'s leading Navigator Web browser and Microsoft's Internet Explorer browser in the AOL service. In return, Gates agrees to place AOL's icon prominently on his Windows 95 operating system.

Meanwhile, new troubles develop, even as AOL membership soars to 5 million in May, 1996. The company's stock tanks on the news that new users are leaving in droves. In one of the few revelations in the book, Swisher describes how desperate mid-level AOLers even consider launching a premium-price "adult-content" channel to retain members. State attorneys general investigate the company's allegedly unfair marketing practices. The Securities & Exchange Commission questions AOL's aggressive accounting.

In October, AOL announces unlimited-use, flat-rate pricing to keep members from defecting to cheaper Internet service providers. And its system is soon overwhelmed in the infamous 1997 busy-signal crisis, as subscribers drive usage from 1.5 million hours a day to 4.5 million hours. But at the same time, new AOL exec Bob Pittman puts in place a seemingly successful electronic-commerce strategy, signing multimillion-dollar deals with merchants such as CUC International and Amazon.com to sell their wares on AOL. And by September, 1997--with its busy-signal crisis behind it--AOL buys its old nemesis CompuServe and looks every bit the triumphant cybersurvivor.

Swisher doesn't go much beyond this familiar saga to get the real story of AOL's numerous near-death experiences. She provides little analysis of the corporate culture that led to the many snafus. And although brief mention is made of early tensions between Case and Pittman, the book leaves unexplored the turmoil that must have existed in the executive suites during these crises.

Still, aol.com is a faithful chronicle of the considerable surface drama of a surprising victor that continues to face down challenges--such as the recent unsuccessful acquisition overture by AT&T. AOL's story is far from over, and this gives Swisher plenty of opportunity to return with Chapter Two of this cyberpioneer's capers.BY CATHERINE YANGReturn to top